The Fed will publish today the proceedings of its meeting from 28 to 29 July. The market focus is not just to maintain interest rates per se, but also whether officials are more clearly divided about the next policy.
The results of the 9-to-3 vote were noticed.
At this meeting, the Fed maintained interest rates between 3.5 per cent and 3.75 per cent, but the result of the vote was 9 to 3, indicating that internal opinions were not consistent. Three dissenting officials advocated an increase of 25 basis points on the grounds that inflation remained above target and that energy prices, among other factors, could continue to push up prices.
The market will then judge from the record whether among the other nine officials who support the military, there is also a tendency to tighten the policy even further, just to wait for more economic data. If there are more than a few voices, the September increase is expected to reheat.
The policy path still depends on data
In the light of the current public signals, the Fed continues to emphasize meeting-by-meeting decision-making rather than providing a clear path in advance. This means that future interest rate adjustments will still depend on changes in inflation, employment and economic growth data.
For markets, subsequent employment and inflation reports will continue to dominate expectations. Policy positions may shift more cautiously if data are re-energized; if the labour market continues to cool, the rationale for maintaining interest rates constant increases.
The interest rate increase in September is expected to fall significantly.
Since the meeting in July, the market's judgement of the September interest rate hike has significantly cooled. Prior to that, the probability that traders would at one time bet an interest rate increase of 25 basis points in September was about 60 per cent.
According to the CME Fedwatch tool, the current market projects a rate increase of 32.8 per cent for September and 67.2 per cent for interest rate maintenance. This change is linked to recent weak employment data in the United States. Following signs of a slowdown in the labour market, there is a general perception in the market that the Fed is more likely to continue to observe data before deciding whether to proceed.
The next FOMC meeting is scheduled for September 16. Until then, the proceedings and subsequent economic data will remain the main basis for the market to judge interest rate trends.